Is Reminiscences of a Stock Operator really the greatest trading book ever written?

It was ranked #15 on ‘Fortune’s 75 ‘The Smartest Books We Know’, and Alan Greenspan said it is “a font of investing wisdom.” The majority of top trading book lists name it as recommended reading, and many great traders credit it as one of their all-time favorites. In another all time classic book ‘Market Wizards’ Reminiscences was quoted by many rich traders that Schwager interviewed, as a major source of stock trading knowledge.

Reminiscences of a Stock Operator is a 1923 novel by American author Edwin Lefevre and is thought to be the life story of Jesse Livermore written as fiction. It takes the readers through the life of Larry Livingston, speculator extraordinaire. Readers get the chance to watch how a legendary trader operates and makes millions. The book is a delight to read since it is written as a narrative, and aspiring stock traders get to pickup market wisdom along the way.

Here are some of the best quotes from the book (Some of the trading lingo and trading principles we still use today was first written in this book):

Trading Psychology:

“A speculator must concern himself with making money out of the market and not with insisting that the tape must agree with him.  Never argue with it or ask for reasons or explanations.”

“He was utterly fearless but never reckless.  He could, and did, turn on a twinkling if he found he was wrong.”

“The speculator’s deadly enemies are: Ignorance, greed, fear and hope.  All the statue books in the world and all the rule books on all the Exchanges of the earth cannot eliminate these from the human animal”

Risk Management:

“Suppose he buys his first hundred, and that promptly shows him a loss.  Why should he go to work and get more stock?  He ought to see at once that he is in the wrong; at least temporarily.”

“I did precisely the wrong thing.  The cotton showed me a loss and I kept it.  The wheat showed me a profit and I sold it out.  Of all the speculative blunders there are few greater than trying to average a losing game.  Always sell what shows you a loss and keep what shows you a profit.”

Trading Method:

“Disregarding the big swing and trying to jump in and out was fatal to me.  Nobody can catch all the fluctuations.  In a bull market the game is to buy and hold until you believe the bull market is near its end” (There is a time for the buy and hold approach!)

“Remember that stocks are never too high for you to begin buying or too low to begin selling.” (Momentum trading can make you a lot of money)

“At the same time I realize that the best of all tipsters, the most persuasive of all salesmen, is the tape.”

“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine–that is, they made no real money out of it. Men who can both be right and sit tight are uncommon.” (You have to let your winners run and set your stop low enough to give your position room to breathe)

“Old man Partridge’s insistence on the vital importance of being continuously bullish in a bull market doubtless made my mind dwell on the need above all other things of determining the kind of market a man is trading in. I began to realize that the big money must necessarily be in the big swing. Whatever might seem to give a big swing, initial impulse, the fact is that its continuance is not the result of manipulation by pools or artifice by financiers, but depends upon basic conditions. And no matter who opposes it, the swing must inevitably run as far and as fast and as long as the impelling forces determine.” (You have to trade in the direction of the current trend)

Whether this is the greatest trading book of all time may be up for debate, but it most definitely the most influential book in the trading business.

This classic book can be purchased in the U.S. at Amazon.com.